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Rand hits record low after Moody's cuts S.Africa rating

Moody's move had an immediate impact on the rand (AFP Photo/Phill Magakoe)

Johannesburg (AFP) - The South African rand plunged to a record low after Moody's downgraded the government's debt to junk status, before recovering slightly on Monday.

The downturn came after the credit rating agency cut its rating for South Africa late Friday to Ba1, below investment grade, citing a "continuing deterioration in fiscal strength and structurally very weak growth".

The rand traded at 18.05 against the US dollar in Asia early Monday, but then recovered slightly to around 17.90 during African trading hours.

"The ZAR has been the worst performing emerging market currency over the past week and traded at its weakest level ever at R18.05 in Asia early this morning," said Wichard Cilliers, head of dealing at TreasuryONE, a South African private financial advisory firm.

He said the currency of Africa's most industrialised economy had now weakened 17 percent over the past month.

Moody's downgrade late on Friday came as South Africa began a three-week nationwide lockdown to try to halt the rapid spread of the novel coronavirus, which has killed two people and infected more than 1,280 people in the country.

Before Friday, Moody's had been the last of the global ratings agencies to keep South Africa on investment grade.

Two other major international rating agencies Fitch and S&P had cut the credit rating of Africa's most developed economy to sub-investment level in 2017.

South African-based firm Cannon Asset Managers (CAM) warned the weaker rand would cause inflation as one-third of the economy was made up of imports.

"It could take as long as nine months for this imported inflation to pass through into the economy, but its effects will be damaging," said CAM CEO Adrian Saville in a statement.

International wealth management group Investec has predicted the rand will "remain volatile this year".